On June 13, 2012, the California Court of Appeal in Hoover v. American Income Life Ins. Co., 206 Cal. App.4th 1193 (4th Dist. 2012) (“Hoover”) affirmed an order by the trial court denying arbitration on the grounds of waiver and Labor Code Section 229. Although the case was noted for its holding with respect to the arbitrability of state statutory labor claims, it included a helpful discussion which, in conjunction with the Court of Appeal’s recent decision in Reyes v. Liberman Broadcasting, Inc., Case No. B235211 (2nd Dist. Div. 1 August 31, 2012), provides a great overview of the issue of waiver. For more on the court’s holding regarding the arbitrability of state statutory labor claims, visit mediator Steven Pearl’s insightful blog at http://cawageandhourlaw.blogspot.com/2012/09/hoover-v-american-income-life-court-of.html
Waiver is generally a factual issue. Traditionally, to prove waiver of the right to arbitrate, a party must prove that (1) the waiving party had knowledge of an existing right to compel arbitration; (2) acted inconsistently with that existing rights; and (3) there was prejudice to the party opposing arbitration. United States v. Park Place Assocs., Ltd. (9th Cir. 2009) 563 F.3d 907, 921 (9th Cir. 2009). In St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (Cal. 2003) (St. Agnes), the California Supreme Court expanded the “factors [that] are relevant and properly considered in assessing waiver claims.” Id. at 1196. The court held that in determining waiver, a court can consider:
“(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place’; and (6) whether the delay ‘affected, misled, or prejudiced’ the opposing party.’”
Id. The California Supreme Court noted, however, that the party claiming that the other waived the right to arbitrate “bears a heavy burden of proof.” Id. at 1195.
As is common in cases of waiver, the court in Hoover, supra, 206 Cal. App.4th 1193 faced the factual question of what constitutes a timely demand to arbitrate. The court observed that “[w]here no deadline for demanding arbitration is specified in the agreement, a party who does not demand arbitration within a reasonable time is deemed to have waived the right to arbitration.” Id. at 1203 (citingSpear v. California State Auto. Assn. (1992) 2 Cal.4th 1035, 1043; Johnson v. Siegel (2000) 84 Cal.App.4th 1087, 1099; Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142, 1157.) What constitutes a “reasonable time,” the court added, “is a question of fact depending on the situation of the parties, the nature of the transaction, and the facts of the particular case, including any prejudice suffered by the opposing party because of the delay.” Id.
The court ultimately found that the defendant-employer had waived its right to arbitrate in Hoover because it had waited almost 15 months after the complaint was filed to move to compel arbitration. Before moving to compel, the defendant-employer filed an answer to the complaint with 22 affirmative defenses, none of which alleged the existence of an arbitration provision, propounded interrogatories and document requests, noticed Plaintiff’s deposition, and tried unsuccessfully to remove the case to federal court.
Waiver was also found in Adolph v. Coastal Auto Sales, Inc., 184 Cal.App.4th 1443, 1451-1452 (4th Dist. 2010), where defendant waited six months before seeking arbitration. In Adolph, defendant filed two demurrers, engaged in attempts to schedule discovery, accepted and contested discovery requests, and failed to assert arbitration in the case management statement. Defendant did not produce the arbitration agreement until after the second demurrer hearing on the day the demurrer was overruled. The court in Adolph stated:
“We are loathe to condone conduct by which a defendant repeatedly uses the court proceedings for its own purposes (challenging the pleadings with demurrers) while steadfastly remaining uncooperative with a plaintiff who wishes to use the court proceedings for its purposes (taking depositions), all the while not breathing a word about the existence of an arbitration agreement, or a desire to pursue arbitration, and, in fact, withholding production of the arbitration agreement until after the demurrer hearing on the day the demurrer is overruled.”
Id. at 1452 (emphasis in original).
Similarly, in Augusta v. Keehn & Associates, 12 193 Cal.App.4th 331, 338-342 (4th Dist. 2011), the court found that plaintiff had waived the right to arbitrate where plaintiff engaged in litigation for 6 months before seeking arbitration. In Augusta, which was a legal malpractice action, plaintiff undertook extensive discovery, initiated and engaged in a meet and confer process, filed discovery motions, sought discovery sanctions, noticed defendant’s deposition, and failed to respond to discovery. The court found that plaintiff’s conduct constituted an unreasonable delay, and “signified an intent not to arbitrate.” The steps plaintiff took in litigation prejudiced defendant. The arbitration process would have been more efficient and information was revealed in supplemental responses to discovery that might not have been revealed in arbitration. Therefore, the court concluded, plaintiff had waived the right to arbitrate. Id.
In contrast, in the recent case of Reyes v. Liberman Broadcasting, Inc., Case No. B235211 (2nd Dist. August 31, 2012), the Court of Appeal held that the employer that asserted its right to arbitrate shortly after the Supreme Court’s decision in Concepcion did not waive its right to arbitrate, even though the defendant-employer had not mentioned the arbitration agreement in its answer and had previously engaged in discovery in the case. In Reyes, the appellate court found that the defendant-employer had reasonably concluded it could not enforce the arbitration agreement before the Concepcion decision. However, after Concepcion was decided in April 2011, defendant-employer promptly informed the plaintiff of its intent to move to compel arbitration, and promptly filed its motion in July of 2011.
The court in Reyes distinguished Hoover, reasoning that in Hoover, unlike Reyes, the defendant had “actively litigated” the case, by “twice trying to remove the case to federal court, availing itself of ‘discovery mechanisms like depositions not available in arbitration,’ and soliciting putative class members ‘in an effort to reduce the size of the class.’” What appeared determinative to the court in Reyes, however, was what the court viewed as a lack of prejudice to the plaintiff.